Wall Street concerned about three major California utilities

Filed: 09/20/2000

By JOHN HOWARD Associated Press Writer

SACRAMENTO (AP)  Wall Street has lowered its fiscal outlook for several California utilities, saying the companies have been strapped by the state's volatile deregulated electricity market.

Fitch IBCA said it lowered its ratings outlook from stable to negative for San Diego Gas and Electric Co., Pacific Gas and Electric Co., and Southern California Edison Co. because of "high wholesale power costs and uncertain recovery of these expenses under existing regulatory structures."

Standard and Poor's dropped its fiscal outlook from positive to negative for PG&E and Edison, but left its positive outlook for SDG&E unchanged. The San Diego utility has "sufficient financial flexibility and credit strength to withstand pressure on its working capital," the investment house said.

But Standard and Poor's said the state's attempts to correct the turbulence in California's deregulated market are causing uneasiness on Wall Street.

California "is in a desperate search for an immediate fix to the pricing crisis, and a rate freeze of some sort for an indeterminate period of time is likely," the Standard and Poor's assessment said.

Moody's, the third major Wall Street credit-rating agency, issued a similar negative assessment earlier for PG&E and SoCal Edison.

The three investor-owned utilities purchase electrical power on the open market, but their rates are capped under a combination of recent legislation and the 1996 California law deregulating the electrical power industry.

A negative ratings outlook does not mean a company's credit rating has been downgraded. But it does mean that the credit rating is under scrutiny and that a downgrade is possible within 90 days, said Lori Woodland, an energy analyst for Standard and Poor's.

Temperatures across the state remained high Tuesday, including triple-digit readings through the Central Valley and along the North Coast. Electricity use also was high, although temperatures lowered slightly in Southern California, easing the demand, the state's electrical manager said.

The utilities noted they are losing money because they are forced to pay high prices for energy, but because of deregulation  which they originally supported  cannot pass those costs on to customers.

SDG&E, which had its rate freeze lifted last year after it completed the transition to a deregulated market, had passed the costs on to ratepayers.

However, newly approved legislation lowered the average residential utility bill $68  down from the current $120  through 2003. The legislation was approved after SDG&E's customers' bills doubled and tripled.

PG&E and SoCal Edison still operate under a rate freeze, sparing their customers from the kinds of rate increases that bedeviled SDG&E's ratepayers.

But PG&E is likely to seek an end to the rate freeze next spring, and SoCal Edison is expected to follow suit by 2002.

Doug Kline, a spokesman for Sempra Energy, the parent company of SDG&E and Southern California Gas, said the Wall Street analyses "are not a downgrading in the credit and this is an important distinction."

"We're disappointed, but this is not unexpected. The uncertainties surrounding California's deregulation plan are not being favorably viewed by the financial industry," Kline said.

The issue is how much the continuing rate freeze will affect the companies, and what will happen if and when the freeze is lifted.

Absent action by state or federal regulators, or the Legislature, to either give rate relief or lower wholesale costs, the credit rating of SoCal Edison or PG&E could ultimately be lowered, analysts said.

"The utility's rating will be lowered without such relief," the Standard and Poor's said, referring to SoCal Edison, an analysis that was similar for PG&E.

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-- Martin Thompson (mthom1927@aol.com), September 20, 2000

Answers

It figures. This whole state is dominated by the Socialists (Democrats). The governorship, both houses of the legislature, majority of U.S. house seats and both Senators. So, it looks like we here in California will be the forerunners of the coming energy-famine economic collapse.

-- JackW (jpayne@webtv.net), September 21, 2000.

What do they always say? Oh, yuh, California leads the way on everything. Well, it looks like they are about to lead the way again.

-- Buck (bigbuck@trailways.net), September 21, 2000.

The idea that California's government is socialist is 1000% wrong.

Deregulation is the opposite of socialism. Socialism would be seizing the utilities to run by the public (ie. government).

Politicians such as Gov. Davis who give huge amounts of public money to private corporations are also the exact opposite of socialism. Some commentators call corporate welfare to be a form of socialism for the wealthy with capitalism for everyone else.

Democrats and Republicans are usually equal in their ability to prostitute themselves to corporations -- and it's amusing (and bizarre) to see how so many get so excited about the relatively minute differences between the two branches of the Corporations Party, when they're almost identical on corporations, money policy, military waste, threatening nuclear war, etc.

-- mark (mark@wind.solar), September 21, 2000.